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The Northern Maritime Corridor Finds Itself at a Cargo Impasse

The Northern Maritime Corridor Finds Itself at a Cargo Impasse

24.02.2011 — Analysis

In March of 2011, the latest concept for the Belkomur, a trunk railway line running from the White Sea to Komi to the Urals, will be submitted to the Russian government. The project, which would significantly speed up cargo shipments from Asia to Russia's northern ports, was developed back in the 20th century, but lack of investment kept it from materializing. Officials say the money and desire to build the rail line exist today, all that is still needed is support from the state. As this columnist for "RusBusinessNews" discovered, they're waiting for the authorities to grant tax or tariff concessions that might help recoup the investment. However, experts are feeling less optimistic. According to them, there are fewer bulk materials being shipped and there might not be enough freight for the new railroad.

The Belkomur trunk rail line was outlined in the 2030 Russian Rail Transportation Development Strategy, and it should become part of the Northern Transportation Corridor, providing the shortest route to Europe from Central Asia and the Far East. The approximately 330-billion-ruble project will cut hundreds of kilometers off the trip for railroad cars going from Siberia to the White Sea. The concept also envisions cargo being rerouted from St. Petersburg to Arkhangelsk, where a serious reconstruction of the local port is being mapped out. It is assumed that the renovated port will handle 28 million tons of freight traffic a year. An increase in shipments of bulk cargo from the hub at Solikamsk was envisioned for the port to be used to supply an integrated program of industrial and infrastructure development in the Komi Republic, and in the Perm and Arkhangelsk regions.

Some entrepreneurs and officials are less than excited about the idea of building a new transportation corridor, thus the project long lacked the support of federal ministries. The media have often mentioned the lack of economic activity in the northern latitudes, the heavy ice in the White Sea, which calls for additional expenditures, the reduced shipments of coal, etc. Aleksandr Misharin, the deputy minister of transportation at that time, claimed that the construction of the new branch would cause freight traffic to be redistributed and result in a loss of income for railway workers and stevedores (porters) at the Murmansk seaport. Still, the relevant departments approved the project and even gave it the status of a priority investment, but it never received any money from the federal Investment Fund, yet another indicator of the project's difficult fate.

Mikhail Osin, the head of the Department of Water Transportation and Communications for the government of the Arkhangelsk region, agrees that part of the traffic from the Baltic will go to Arkhangelsk, but that wouldn't injure anyone's interests. The St. Petersburg port is packed as tight as can be, and the business community would be only too happy to unload some of that traffic. This official does not see worries about the White Sea freezing as a serious cause for concern. The Gulf of Finland is also covered with ice from December to April. This February the ice is so thick that that each vessel has to be towed separately, which is why as many as 80 ships have been piled up in St. Petersburg's Bolshoi Port. Mikhail Osin claims that the White Sea, however, only freezes along the coast, in the delta of the Northern Dvina River - thus, four icebreakers can easily manage the pilotage.

Nor does a representative of the Arkhangelsk regional government believe that the port of Murmansk will be left without freight. Today, its development is hampered by the traffic capacity of the Oktyabrskaya Railway, not by competition from Arkhangelsk. According to Mikhail Osin, the citizens of Murmansk also support the construction of the Northern Maritime Corridor.

Some EU countries, in addition to St. Petersburg residents, are opposed. In particular, Finland would like to transport freight to and from Europe and Asia through its own seaports. Thus, there is a negative environment surrounding the Belkomur. But an agreement was reached with the Finns, who have found their niche in the project, agreeing to build Polar-class ships for transportation companies. Mikhail Osin claims that currently the freight traffic is being calculated and adjustments are being made to the project that was developed in the last century. Everyone really wants to build the Belkomur - there are many proposals and the money is there.

Marina Fedorenko, the official representative of the Belkomur open joint-stock company, says that major financial corporations, not necessarily Russian ones, will probably finance the construction of the railroad. Once it became known that no money had been received from the Investment Fund, the decision was made to seek a private investor. But Marina Fedorenko thinks that without the participation of the federal government, a project like this will never get off the ground. Tax or tariff concessions are expected from the state.

Albert Eganyan, the managing partner of the Vegas Lex law firm, told "RusBusinessNews" that his company is currently developing the tender documentation, under which the regional authorities will select several consortia and hold a tender among them. The winner of that tender will finance the construction of the railroad and then transfer it to the government's balance sheet; but the company will continue to operate the railroad until it has seen a return on its investment. Albert Eganyan has no doubts as to the success of the project, "We would not get involved in this case on a contingency fee basis (meaning, those who will operate the railroad and make a profit will be the ones who pay us for our work), if we were not confident of its financial prospects".

But the Belkomur's future doesn't look so rosy to Aleksey Bezborodov, the general director of the Infra News agency. That expert doubts the Perm region will be able to significantly increase its freight traffic headed to northern ports. The market for potash fertilizer will increase, but Solikamsk isn't capable of supplying the new rail line on its own.

Anton Subbotin, the head of Silvinit's press office told "RusBusinessNews" that after the merger with Uralkali, the new, consolidated company will produce about 10.6 million tons of fertilizer a year, and eventually - 13 million tons. The company intends to make a solid investment in the development of new potash deposits and a major freight-transfer station will also be built in Solikamsk. When these projects are finished, more freight shipments will be sent by rail, but Anton Subbotin found it difficult to give specific numbers, citing the pending merger of Uralkali and Silvinit.

Aleksei Bezborodov, however, responded with the following data: the port of Arkhangelsk is operating at only 45% of its capacity, and revenues at the port of Murmansk fell 20% in 2010. The biggest exporter of coal, the Siberian Coal Energy Company, has damaged these indices for the Murmansk stevedores by reducing its export shipments. "I feel sorry for the authors of the Belkomur project. We need it, but right now we lack the necessary conditions, the freight traffic, and the money," the expert summed up.

Vladimir Terletsky

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